Tax Guide for US Expats Living and Working in Botswana
Who Is Liable For Income Taxes in Botswana
Individuals earning income in Botswana are subject to income tax.
Individuals are considered resident in Botswana for any tax year (1 July to 30 June) if they meet any of the following conditions:
- Their permanent place of abode is in Botswana.
- They are physically present in Botswana 183 or more days during the tax year.
- After staying in Botswana 183 or more days in a tax year, they physically remain in Botswana into the next tax year, even if they do not stay in Botswana 183 days during the latter tax year.
Income subject to tax
Employment income. With a few exceptions, income derived from sources outside Botswana is not subject to tax. All salaries paid, and benefits provided, for work performed in Botswana are taxable, regardless of where paid or provided. Special tables are used for calculating the taxable value of fringe benefits.
For individuals who receive retrenchment packages, one-third of the amount of the package, or an amount equal to the tax threshold, whichever is higher, is exempt from tax.
Educational allowances provided by employers to their local and expatriate employees’ children are taxable.
Self-employment and business income. Business profits from self-employment activities are taxed at the rates described in Rates. Partners are individually subject to tax on their shares of business profits. If the owners of a company are residents and if the company’s income is less than P 300,000, they may elect to have the company’s profits taxed in the same manner as partnership profits.
Directors’ fees. Directors’ fees are added to the taxable income of residents and nonresidents.
Investment income. Interest paid to a resident is included with other taxable income and taxed at the rates described in Rates. Up to P 6,000 of interest received in a tax year by residents from banking institutions or building societies in Botswana is exempt from tax. Under a proposal, the amount of exempt interest will be increased from P 6,000 to P 7,800. Royalties and rental income from Botswana sources are also included with other taxable income and are taxed at ordinary rates.
Dividends from resident companies are not included in taxable income.
Interest, dividends, royalties, and management and consulting fees paid to nonresidents are subject to a 15% final withholding tax.
Under a proposal, the withholding tax rate on dividends will be reduced from 15% to 7.5%.
Interest paid to residents in excess of P 6,000 is subject to 10% withholding tax, which is a provisional tax. Under a proposal, the exemption threshold for interest subject to residents’ withholding tax of 10% will be increased from P 6,000 to P 7,800. A credit is granted for the withholding tax against tax chargeable on assessment.
Taxation of employer-provided stock options. No specific provisions regulate the taxation of employer-provided stock options. Under general principles, the employee is taxed at the time of exercise on the difference between the fair market value of the stock at the time of exercise and the strike price.
Capital gains. Capital gains tax is levied on gains derived from the sale of immovable capital assets on and from the sale of corporate shares and debentures. Gains on the disposal of a Principal Private Residence (PPR) are exempt from tax to the extent that the proceeds are invested in another PPR within 24 months after the date of disposal. Under a proposal, gains on the sale of a principal private residence will be exempt if the individual has held the principal private residence for a period of least five years.
To compute capital gains on sales of property acquired before 1 July 1982, the cost of acquisition and improvements is increased at a rate of 10%, compounded for every 12-month period from the date of acquisition to 1 July 1982, and then indexed for inflation from 1 July 1982 to the date of sale. For property acquired on or after 1 July 1982, the cost of acquisition and improvements is indexed for inflation in computing capital gains.
Only 75% of gains derived from sales of corporate shares is subject to tax. Gains derived from the sale of shares listed on the Botswana Stock Exchange are exempt from tax. Under a proposal, gains on the sale of shares listed on the Botswana Stock Exchange will be exempt from tax if the shares have been held for a period of at least one year.
Deductions
Personal deductions and allowances. A single tax-free allowance of P 30,000 is incorporated into the individual tax table applicable to residents. Under a proposal, the tax-free allowance will be increased from P 30,000 to P 36,000. A deduction for approved pension fund contributions is also allowed, limited to 15% of income, excluding investment income.
Tax-free gratuities for noncitizens. One-third of a gratuity paid to a noncitizen employee is exempt from tax if the employee has completed a two-year contract of employment and if the gratuity payment is provided for in the employment contract. For the first contract, the one-third exemption is applied up to a maximum of 25% of an individual’s cumulative salary, 27.5% for the second continuous contract and 30% for the third contract and subsequent contracts.
Business deductions. Business expenses of sole proprietorships and partnerships are deductible to the extent incurred in producing taxable income. Resident sole proprietors and partners may take the same salary deductions as employees.
Relief for losses. Losses may be carried forward for five years on a first-in, first-out basis.
B. Other taxes
Estate income tax. An estate is subject to tax on income earned in the 2010–11 tax year.
Capital transfer tax. The recipient of property transferred gratuitously or by inheritance is subject to capital transfer tax. Liberal exemptions apply. For example, all transfers between spouses and the first P 100,000 transferred by inheritance are exempt.
C. Social security
Social security taxes are not levied in Botswana.
To learn more about the history, culture, economy and other information about Botswana
We have been preparing US income tax returns for US Citizens and permanent residents living in Botswana for over 15 years. As a US Citizen or permanent resident (green card holder) you are required to file a US return each year regardless of the fact that you file and pay taxes in your residence country. The expatriate earned income exemption ($100,800 for 2015) can only be claimed if you file a timely tax return. It is not automatic if you fail to file.
We have scores of clients located in Botswana and know how to integrate your US taxes into the local income taxes you pay. Any income tax you pay there can be claimed as a dollar for dollar credit against the tax on your US return on the same income.
As an expat living abroad you get an automatic extension to file until June 15th following the calendar year end. (You cannot file using the Botswana tax fiscal year for US tax purposes). You must pay any tax that may be due by April 15th in order to avoid penalties and interest. You can get an extension to file (if you request it) until October 15th.
There are other forms which must be filed if you have foreign bank or financial accounts; foreign investment company; or own 10% or more of a foreign corporation or foreign partnership. If you do not file these forms or file them late, the IRS can impose penalties of $10,000 or more per form. These penalties are due regardless of whether you owe income taxes or not.
There are certain times you may wish to make elections with respect to your Botswana Corporation or Investment Company which will give you US tax benefits. There are other situations where forming a US corporation to receive your business income may be more advantageous than using a corporation in your resident country. We can help you with these decisions.
If you are self-employed while working in Botswana, you will have to pay US self-employment taxes (social security). If you are a bona-fide employee you do not have to worry about paying US social security on your wages earned in Botswana.
We have helped hundreds of expats around the world catch up because they have failed to file US returns for many years. Unfortunately, unlike India, Canada, UK, etc. you must also file so long as you are a US citizen or resident. You can if you follow proper IRS and State Department procedures surrender your US Citizenship and therefore cut off your obligation to pay US taxes in the future. You must surrender that Citizenship for non-tax avoidance reasons and then can usually not return to the US for more than 30 days per year for the subsequent ten years.
Let us help you with your US tax returns, US tax planning and other US tax and legal concerns. Download our expat tax questionnaire or request a request a consultation by phone, skype or email